S&P Global Ratings said in a recent report that it “believes the long-anticipated air traffic recovery may be pushed well into 2022 or later, particularly if intercontinental travel remains subdued, vulnerable as it is to pandemic-related restrictions and sluggish business travel.”
Asia-Pacific won’t see a smooth broad-based rebound, S&P said. The domestic market in China bounced back quickly and almost reached prepandemic levels in July 2021. Yet vaccination rates have been relatively low across Asia, and many governments have adopted a risk-averse approach to the pandemic, with some pursuing a strategy that involves restricting travel to minimise virus transmission, notably in view of the delta variant. Vaccinations have been slow in Australia, but are speeding up and should approach 70 percent by the end of October. However, domestic traffic slid in July to 25 percent of prepandemic numbers, after getting to 50-70 percent in June. In contrast, New Zealand’s airports have seen domestic traffic return to 80-90 percent of prepandemic levels due to shorter, targeted lockdowns over the past year. The trans-Tasman travel bubble has been tested many times and the surge in traffic observed under quarantine-free conditions suggests that there is still a propensity to travel once the pandemic subsides. New Zealand expects 70 percent of its population will be vaccinated by the end of 2021, in time for its summer season.
The report showed that the US aviation industry was bouncing back based on its domestic traffic, which normally accounts for 75-80 percent of total air traffic in the US. Travel in the US accelerated throughout the second quarter of 2021, leading to a strong summer for airlines and airports. In July, pent-up demand for holidays and leisure travel pushed US air traffic to almost 85 percent of prepandemic levels, S&P reported. The momentum is likely to taper off in the fourth quarter due to the industry’s typical seasonality, alongside an increase in COVID-19 cases that appears to be affecting bookings, according to recent data.
“Nonetheless, the rebound in traffic and billions of dollars in direct federal support have stabilised US airport operators’ credit profiles,” S&P said. “This resulted in a return to stable outlooks for the majority of operators we rate in March 2021, and positive outlooks for a few not-for-profit airports in recent weeks. Similarly, our ratings on US airlines now carry stable or positive outlooks, although they remain one to four notches below prepandemic levels.”
Business travel and intercontinental flights, which generate a disproportionate share of traffic by revenue passenger kilometres (RPKs) because of the distances involved, have not fared as well, S&P reported. “Data from some American airlines show that business-travel passenger numbers stood at roughly 40 percent of prepandemic levels at the end of Q2. Business travel faces additional vulnerability, since some companies’ shift to virtual meetings may become permanent.
In Europe, the situation was worse. Europe’s lack of a large domestic aviation market, cross-border restrictions, emergence of COVID-19 hotspots, and slow vaccination rollouts mean that air travel is trailing far behind the US, S&P said. IATA data from May 2021 indicates that air travel across Europe, as measured in RPK, slumped to just 15 percent of the prepandemic level before a modest increase to 23 percent in June. In July, certain rated European airports registered 40-50 percent of prepandemic volumes as vaccination rates progressed and the EU’s Digital COVID Certificate made crossing borders smoother. “Should this trend continue, average air traffic volumes may reach 30 percent this year, which is at the bottom of the 30-50 percent range we forecast in February,” S&P said.